Silicon Graphics: Revs Grow; New Chairman; Needs Capital

By Eric Savitz

Silicon Graphics (SGIC) shares are up sharply on thin trading this morning after the company last night posted results for its fiscal fourth quarter ended June 27. The company also named Anthony Grillo, the CEO of American Securities Advisors, as chairman; he replaces Kevin Katari, of Watershed Asset Management, who resigned from the board. Also leaving the board is Chun Won Yi, from investment firm Monarch Alternative Capital. As of June 30, Watershed held a 13% stake in the company, while Monarch owned 26.7%. Grillo has been on the board since October 2006.

Silicon Graphics reports some of the most complicated financial statements you will ever read; their latest quarter release is 26 pages long. Combine that with the fact that there are no analysts publishing on the stock and you have a set of results that are not easy to interpret. But here’s what I can tell you. On a pro forma basis, excluding the impact of fresh start accounting for the company’s emergence from bankruptcy, and also excluding the deferral of revenue recognition for transactions “where software is more than incidental to the overall solution,” the company posted revenue of $121.5 million, up from $80.9 million in the third quarter. On a GAAP basis, revenue was $93.9 million, versus $79.1 million in Q3, and $122.3 million a year ago.

SGI said bookings for the full year were up 25% to $356 million. Backlog at year end stood at $147 million, versus $66 million a year ago.

The company posted a loss for the quarter of $35.2 million.

On a post-earnings conference call – which by the way had the distinction of being so sparsely populated that there was not a single question from listeners – the company said that Q1 bookings would be down from Q4, in the range of $55 million to $75 million. The company sees pro forma revenue for the quarter of $100 million to $125 million. For fiscal 2009, the company said it expects revenue and bookings growth at least that of the overall high performance computing sector, which IDC says will grow 10%. Since revenue for FY 2008 was $354.1 million, that implies full-year FY 2009 revenue of around $390 million.

CFO Kathy Lanterman noted on the call that the company is scheduled to begin principal payments on its existing debt in fiscal 2009 – SGI has $132.5 million of long-term debt, including $12.75 million classified as short-term. As a result, she said the company is “actively exploring alternatives to raise additional capital or to restructure our existing debt.” She says the company needs additional capital “to support the growth” the company expects in the business this year. Added Lanterman: “We continue to have confidence in the progress that we’re making in our turnaround, and also continue to work on efforts to demonstrate that progress to all of our constituencies, and to ensure that we have a capital structure in place to allow us to fully execute our plans.”

SGIC today is up 72 cents, or 12.1%, to $6.65.

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